The Price of Time: The Real Story of Interest

Anthropologists no longer accept that money originated to replace barter, as classical economists, including Smith, had maintained. There is no evidence for this barter-to-money myth. On the contrary, it seems likely that credit antedated money and that the earliest forms of credit bore interest.

traditional view that charging for loans was inherently unjust.

Drawing a parallel between the US Forest Service and Federal Reserve is irresistible. The Fed was created less than a decade after its environmental counterpart. By the 1920s the Fed was attempting to suppress the business cycle. While ‘federal fire suppression acts to subsidize developments of private lands in fire-prone areas’, the Fed’s policy o

Yet our modern monetary mandarins never stop to consider Bagehot’s warnings about the adverse consequences of easy money – how interest rates set at 2 per cent or less fuel speculative manias, drive savers to make risky investments, encourage bad lending and weaken the financial system. One wonders whether any of them has actually opened the pages

Economists talk about time preference rather than impatience to describe how people value present and future goods differently. An individual’s time preference can be seen as a kind of personal rate of interest.

In 2015, the Bank for International Settlements warned that finance was crowding out the real economy. More bank loans went to sectors with plenty of collateral, such as real estate, which generated little by way of efficiency improvements. Manufacturing and businesses that required lots of R&D were starved of credit. Beyond a certain point, th

Interest exists because loans are productive, and even when not productive still have value. It exists because those in possession of capital need to be induced to lend, and because lending is a risky business. It exists because production takes place over time and human beings are naturally impatient.

Interest is the wage of abstinence, said Senior.

‘This is not a question of trade-offs. We cannot shy away from implementing a policy that ensures price stability on account of potential collateral effects.’53 The ECB would pursue its target, let the consequences be damned.